Tokyo Asks: Are We Botswana or Are We Japan?: William Pesek Jr.
2002-05-30 00:21 (New York)
Tokyo Asks: Are We Botswana or Are We Japan?: William Pesek Jr.
(Commentary. William Pesek Jr. is a columnist for Bloomberg
News. The opinions expressed are his own.)
Tokyo, May 30 (Bloomberg) -- In the dust-up between Japan and
international rating agencies, Africa has played a fascinating
role. Tokyo doesn't seem as concerned with its actual credit
rating as with whom it's shared.
``For Japan's rating to be lower than countries in Africa to
which it provides foreign aid -- can that really be?'' Prime
Minister Junichiro Koizumi fumed last month. Days later, Tokyo
publicly challenged credit raters, demanding to know how Japan
could be placed in the same financial neighborhood as Botswana.
Never mind that Botswana isn't the economic basket case many
believe. For Tokyo, the association is the problem. Japan, they
protest, is an economy that's joined the West in terms of size and
wealth. Rating it the same as an African nation would be
disrespectful.
Well, has anyone asked Botswana how it feels being compared
with that crisis-waiting-to-happen that is the world's No. 2
economy? It's not exactly an enviable comparison to be a part of
and one Botswana also feels is unfair. Botswana central bank
Governor Linah Mohohlo, for example, recently warned that Japan's
problems pose a threat to global stability and urged Tokyo to get
its act together.
Other economic minnows not known for their influence in
global affairs have made similar requests. ``There is no
indication that Japan will soon contribute to the global
recovery,'' says Nicolas Eyzaguirre, who as finance minister runs
Chile's $70 billion economy -- dwarfed by Japan's $4.5 trillion
economy.
In Denial
What's interesting about all this is the powerful
psychological effect it's having in Tokyo. Sure, officials here
remain in denial about the magnitude of their problems, but
outside pressure is coming from the most unlikely of places. No
longer is it coming from the Group of Seven nations or folks in
Washington. Now, it's coming from the economic periphery, too.
With the pride of Japan's fiscal managers taking hits from
every direction, it's getting harder to take seriously the
government's brawl with credit raters. Love them or hate them,
Fitch, Moody's Investors Service and Standard & Poor's aren't the
enemy. They're messengers, and the Japanese government is taking
shots at them.
Investors here are biding their time until Moody's announces
its latest thinking on Japan. Markets are abuzz with talk of a two-
notch downgrade, a move that would put Japan on a par with Kuwait
and South Africa. Moody's, knowing just how sensitive its review
will be, is taking its time.
The delay has investors wondering if Moody's will in fact go
two notches to ``A2.'' If it does, Tokyo's going to become
apoplectic with rage.
Thin Skin
Always sensitive to outside pressure, the government has
displayed an especially thin skin of late. Stress is certainly
part of the problem. The Japanese government has been looking
deeper and deeper into the bad-loans debacle hampering its banking
system and can't like what it sees. For every non-performing loan
banks get off their books, another two seem to pop up to replace
it.
Public finances pose another quandary. While Koizumi still
pledges to reduce government bond sales, observers here expect
public debt to continue rising as a percentage of gross domestic
product in the years ahead. It will be necessary if Koizumi is to
carry out even the mildest of his reforms.
The credit raters are not above reproach, of course. They
missed Enron Corp., didn't they? And what about the Asian
financial crisis before that? One can also wonder to what extent
credit raters merely represent the Washington consensus -- the one-
size-fits-all policy orthodoxy that made more sense in the pre-
Asian crisis world.
Special Case
Japan, the point must be made, is a special case. It has
negligible foreign debt and the world's biggest pool of savings.
About $11 trillion is cushioning the economy from pain, crisis and
the risk of imminent default. All of this explains why, despite a
national debt that's 40 percent bigger than the economy, 10-year
bonds yield a scant 1.5 percent.
Still, ratings agencies can't be ignored over time --
especially when a critical mass of global investors also think
Japan's financial system is a mess. While Japan is annoyed at all
the public attention, international policy makers have become
downright dismissive about Japan's role in Asia -- and the global
economy.
Ask officials in Bangkok, Beijing, Hong Kong, Jakarta,
Manila, Seoul or Singapore about Asia's biggest economy and you'll
get some variation of: ``We're not expecting much from Japan over
the next several years. Things will get worse before they get
better.''
Lost Decade
What you'll also hear is wishful thinking that rather than
get mad, The Japanese government will take the hint from credit
raters. Otherwise, Japan's name will become synonymous with
economic malaise and dysfunction. Some Asian economic policy
makers jokingly ask if Japan will experience one lost decade, or
two.
A personal experience might provide a hint of where Japan's
heading. On Nov. 28, 2001, after S&P lowered Japan's credit rating
to the same level as Italy, I headlined a column ``Japan Becomes
the Italy of Asia.'' At the time, I worried Japanese readers would
be offended, given Italy's own reputation for fiscal
irresponsibility. It was the Italians who were upset.
Angry e-mails funneled in from around the globe, including
from Bloomberg's bureaus in Rome and Milan. I was derided as
``stupid'' and ``ignorant'' and ``intellectually dishonest'' for
even suggesting that Italy's economy was anywhere's near is bad as
Japan's. In retrospect, these readers had a point.
--William Pesek Jr. in the Tokyo newsroom at (813) 3201-7570, or
wpesek@bloomberg.net. Editor: Bickers, *McPherson
Story illustration: To graph Japan's quarter-on-quarter GDP
growth, click on {JPGDGDP <Index> GP <GO>}. To comment on this
column, go to {LETT <GO>} and write a letter to the editor. To see
past Pesek columns, click on {NI PESEK <GO>}.
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